Tag Archives: free trade

The Economic Freedom Network (EFN) Asia participated once more at the annual Jeju Forum for Peace and Prosperity, a big international conference held at Jeju Island, S. Korea. I am reposting this report submitted to the organizers within an hour after the panel discussion. Originally posted at the EFN website.

I add two photos here, taken from EFN’s fb page. From left: Wan, John, Razeen, Young-Han.

Friedrich Naumann Foundation (FNF) is a German non-profit organization, founded in 1958 post-war West Germany. The main goal at the time was to help re-establish democracy in West Germany. Shortly after, FNF opened offices abroad, including in Tunisia, India and Indonesia. The office in Korea was opened in 1987. We promote liberty in Korea through a variety of programs including democracy building, projects with market economy, human rights, rule of law and also the re-unification issue, bringing in the unique German experience of re-unification. In fact, FNF has projects in both Koreas. The North Korea program started in 2004, focusing on economic policy. The session today at the Jeju Forum is hosted by both FNF and Economic Freedom Network Asia (EFN Asia), FNF support’s network of liberal minded think tanks and individuals.

(From left: Wan, John, Razeen, Lars, Young-Han)

Dr. Kim Young-Han

Threat of the Protectionism by the US Trump Presidency

– Why Protectionism by the Billionaire US President?

Trump thinks that the current format of ‘the Global Open Market System’is unbearable and unsustainable for the US blue collar workers. Are US blue collar workers simply irrational? No, they are absolutely rational.

– The US blue collar workers know that there is not and will not be an effective trade adjustment assistance system in the US. Winners get everything with no room for losers in global open market according to the US experiences. (The same with the Brexit case.)

– How much of a threat caused by the Trumpian Protectionism?

Very threatening and disastrous. If Trumpian Protectionism is spilled over to major trading countries, the global trade war is the next stage, just like the experience before the two World War. The current one-sided protective measures of the US are highly likely to provoke retaliatory measures from trading partners.

– Is Trumpian Protectionism Sustainable?

Not really, since it’s self-defeating. Why? The source of gains from free trade: Efficiency Gains via Reallocation of economic resource from inefficient sectors to efficient sectors. In the US, without the effective trade adjustment assistance mechanism, resources in the inefficient sectors became laid-off instead of being reallocated. What Trump tries to do is to keep inefficient sectors protected as inefficient, which is self-defeating and unsustainable. He suspects Trump will realize this after 3-4 years.

– Can other powers fill in the US role?

The Share in the Global Trade: EU takes roughly 40% of the world trade, followed by Asia which takes 33%, and North America (17%). If the US goes back to protective regime, it is bad, while the other players can keep the remaining 83% under free trade regime. The EU might play a more meaningful role in leading the global free trade regime and also Asian powers like China. But he does not think so.

– The requirements for the leadership the global free trade regime: Leader has to prepare itself and operate on a rule-based trade policy and National Treatment for all players (treat all players as domestic players). The EU is more prepared, but not China. Furthermore, Big Players with market power are likely to resort to bilateral arrangements based on one-sided bargaining power. Therefore, relying on a multilateral platform is better than relying on a big guy leading power. Rebuilding the Multilateral Free Trade Regime via WTO is the solution.

The Role of Asia in Rebuilding the Global Free Trade Regime

– Datawise, Asia takes significant market power, i.e. 33% of the global trade. Historically speaking, all Asian countries’ economies, such as Japan and South Korea, have emerged via the global free trade regime with no regret against the multilateral free trade regime, WTO. A multilateral free trade regime as WTO is welfare dominant to a single country leadership (by whether the US or China). Asia has kept the spirit of multilateral or plurilateral free trade regime via ASEAN and ASEAN+3, and even ASEAN +6. Asian economy with her complexity in terms of diverse stages of economic development and asymmetry of economic size and power works as a miniature of the global economy with gradual and sustainable unit of economic integration.

ii) Multilateral Free Trade Regime with strong surveillance and reputation building mechanism with respect to the Big Guys with market power.

Dr. Razeen Sally

He has three main points to make. First, where we are in the global economy, particularly on trade. Second is on protectionist threat. Third is on what can be done in and by Asia to keep the market open.

– Where are we in the global economy?

Economic globalization has not been reversed, since the global financial crisis, but it has stalled. There has been a global growth slowdown. Trade to GDP worldwide has not increased, since about 2006. Foreign direct investment flow has decreased, since the crisis Cross-border flow of finance has Decreased considerably, as expect from the global financial crisis.

– But particularly on trade, something unusual is going on. Since the beginning of 19th century until 2008, world trade grew faster than world output, which is the indication that trade is the engine of growth. But since 2012 until the end of 2016, trade growth barely kept pace with world GDP growth at about 3 percent or less. This is highly unusual and tends not to happen except in war and deep recession. This is particularly worrisome for Asian nations, whom depend on exports. But still too early to tell if this is a new trend.Continue reading →

Human prosperity is not possible if there is no economic freedom, if people do not have the freedom to own private property and have freedom to trade. Misery is the result if people live under political dictatorships and bear the effects of the state’s economic central planning.

The event also launched the results of the Economic Freedom of the World (EFW) 2016 Report by Fraser Institute in Canada. The EFW index is measured by getting the scores (0 to 10, zero is totally unfree and 10 is full economic freedom) of countries covering five criteria: (1) Size of government, (2) Legal system and property rights, (3) Sound money, (4) Freedom to trade internationally, and (5) Regulation.

Countries with big governments and high taxes get low scores in the first measure while nations with highly corrupt legal systems and unstable property rights protection will receive low ratings in the second, and so on. The composite score of the five criteria covered is generated and countries are ranked from highest to lowest (see table).

The numbers on the right show the following.

One, for many years now, Hong Kong and Singapore are recognized as the two freest economies in the world. Their governments are strong in enforcing the rule of law and protecting property rights, have low income tax rates, zero or near-zero tariff rates. They may have many non-tariff barriers (NTBs) but that is for another paper.

Two, many ASEAN countries are in the middle tier in global ranks out of 157 countries covered. Outliers are Singapore which is high up there, and Vietnam and Myanmar which are among the bottom-ranking countries.

Three, the Philippines and other ASEAN countries’ score and global ranking do not significantly move up or down and I think there are flaws in the scoring made by Fraser. Here’s why.

In sub-area “Freedom to own foreign currency bank accounts,” the Philippines, Malaysia, Thailand, and Vietnam got 0 (out of 10). Similarly, these four countries also posted low scores in criteria 3, Sound Money. I think foreigners and foreign corporations can own forex bank accounts here in the Philippines, also in Malaysia, so why did Fraser give a score of 0?

In sub-area “Capital controls,” the Philippines, Malaysia, and Vietnam scored only 0.77 while Indonesia and Thailand scored 1.54 (again, out of 10) such that their scores under Area 4, Freedom to Trade Internationally, are again low.

Perhaps the capital control that Fraser refers here is the maximum amount of Pesos (about P10,000) and dollars ($10,000) that Filipinos and foreigners can bring in or out when they travel abroad. But many travelers hardly use big cash for their transactions, they use credit and debit cards. People can also send huge amounts of money anytime via banks or money couriers from abroad to the Philippines and vice versa, without capital control limits.

Since countries’ global ranks are separated only by one or two decimal places, significant low score in Areas 3 and 4 in this case would mean overall low score. As a result, the Philippines’ overall score of 7.01 made it rank 80th while Taiwan’s score of 7.65 made it ranked 23rd. A difference in score of 0.64 already spells a huge difference of 67 places in global ranking.

Fraser should either check its data properly or adjust the scoring.

Instead of 0 or 10 for “freedom to own forex account,” “capital control” and other sub-areas, it may adjust the score to 0 or 4 or 5. This will reduce the distortion in overall score and hence, in global ranking.

Nonetheless, Fraser is doing a good job in promoting the philosophy of economic freedom, free trade, rule of law, low taxes and limited government. Its annual EFW report is being cited in various international studies and helps guide civil society and corporate leaders, government and public policy makers in instituting reforms towards a freer, more prosperous world.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET. Both institutes are members of EFN Asia.

The Economic Freedom Network (EFN) Asia conference 2016 at Dusit Thani Hotel in Makati ended last Wednesday. Thanks again FNF and EFN for another wonderful conference.

Here are some tweets from #efnasia2016 and my own thoughts about the event.

Protection of human rights is part and parcel of EU policy – Walter van Hattum, EU Delegation to the Philippines.

It’s a responsibilty of businesses to respect human rights… It is state duty to protect and defend human rights in its territory.

Nobody can seriously suggest that businesses can opt in and out of respecting human rights as they wish… There is legal obligation for businesses to respect HR.

Businesses should be as transparent as possible so they will be less likely to be attacked by false news. Business leaders are often uncomfortable explaining to the public how they work. It’s understandable but unwise. — Markus Leöning, former Himan Rights Commissioner in Germany.

Increasingly populist goverments a threat to human rights and economic freedom. The pendulum has swung as globalization has failed in its promises to those who have lost out in its benefits. Food for thought. — Frank Largo

For me, among the important human rights of the people is freedom to choose in the market place, freedom to sell or not sell, freedom to buy or not buy. Political human rights like the right or freedom from theft (especially organized criminals), murders, prosecution and harassment, that is where the state should come in.

A minimal government focused on enforcing the rule of law, enforcing contracts between and among people, is consistent with economic freedom and human rights protection. That minimal govt should have no business creating and expanding lots of endless welfarist programs. Prosperity is not an entitlement or privilege. Lazy and irresponsible have no right to a prosperous life, they deserve poverty. Politically incorrect statement, as usual.

Rule of law means the law applies equally to unequal people. So the law should apply to both rich and poor people, to big/giant and small firms. A law or contract can be written, verbal, done by govt or private entities. Basic human rights then means that people have access to such equality before the law.

People’s definitions of human rights vary. What may be HR violations to some can also be another’s sole income source… Definitions of human rights vary. What may be HR violations to some can be another’s sole income source. — Wan Saiful Wan Jan

Good point. Some westerners may consider temporary child labor as HR violation already but for some households, it is ok and necessary. If a sole family breadwinner is gone for instance, the young need to work to help sustain the family. Harsh but necessary.

Stakeholder values, not just shareholder values. — Rishi Sher Singh

Barun Mitra tweets:

Business of business is indeed business! Inclusive of profitability for investors, benefit to consumers, add values to society.

Value added products, economic and social, become affordable with prosperity, and necessity in a free competitive market.

Implentating Rule of law carries cost, level of effective enforcement has to be affordable, economically socially politically. #EFNAsia2016

I think corporate branding will help global firms stay the course in HR and econ freedom protection, respecting #ruleOfLaw. Firms would dislike to be associated with bad products, bad services, bad corporate image. So they will try to be as transparent as possible, to be accountable to their products and practices. Transparency is good protection vs negative image/attacks.

Access to internet can’t be a “Right”. Political rights are negative rights. Any +ive right paid for by others can’t be a RIGHT.

TPP may be good agreement, but has lost legitimacy because govts. no longer carry credibility among large sections of people. –– Barun Mitra

As usual, I agree with Barun’s ideas and observations: unilateral trade liberalization; countries and governments do not trade with each other, people do; so governments, national and multilateral, should step back from trade negotiations as much as possible. Let companies and people organizations negotiate with their suppliers and consumers abroad and keep prices low via low or zero tariff, minimal non-tariff barriers

People who cannot find certain goods and services at specific quality from local producers given their limited personal or household budget may be able to find those from foreign producers. And people who cannot sell their products or services to local buyers may find those buyers abroad.

And this highlights the beauty of free trade: No trade will occur unless both parties, the buyer and seller, will benefit. There are losers and gainers in free trade of course, the same way that there are losers and gainers in no trade (autarky) or restricted trade. Overall, there are “net gains” in free trade where the advantages outnumber the disadvantages.

Global free trade is supposed to be facilitated by the World Trade Organization (WTO) when it was created in 1995. But 21 years later, this is far from happening.

Regional trade agreements (RTAs) and even trans-continental agreements were invented such as the ASEAN Free Trade Area (AFTA), Regional Comprehensive Economic Partnership (RCEP), and the Trans-Pacific Partnership (TPP).

This topic was discussed during the recently concluded big annual international conference, “Jeju Forum for Peace and Prosperity 2016,” held in Jeju, South Korea. The forum also had a panel that had the theme, “Trans-Pacific Partnership: an Assessment of its Political Economy” sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and the Economic Freedom Network Asia (EFN Asia) last May 26, 2016.

The discussion moderator was Dr. John Delury, Associate Professor at the Graduate School of International Studies, Yonsei University, Seoul, South Korea. The discussants were Dr. Sethaput Suthiwart-Narueput, Executive Chairman of the Thailand Future Foundation (TFF), Kwon Tae-shin, President of the Korea Economic Research Institute (KERI) in Seoul, and Dr. Keisuke Iida, Professor at the University of Tokyo Graduate Schools for Law and Politics, Japan. The opening remarks was given by Dr. Lars-Andre Richter, Resident Representative of FNF Korea Office.

Panel Rapporteur was Pett Jarupaiboon, who is also the also the Program Manager of EFN Asia, based in Bangkok, Thailand. Pett shared his notes with me.

The three discussants are all liberal economists and are pro-free trade, pro-WTO, but they disagree and debate on the role of the TPP.

In particular, Mr. Kwon and Dr. Iida were critical of the WTO because of the lack of progress in global free trade. Dr. Sethaput argued that RTAs like TPP would undermine the progress of the WTO.

Here are the main arguments of the discussants.

(1) Mr. Kwon, KERI, South Korea. TPP members will enjoy an increase in exports and income from an enlarged market size, and they will also enjoy more consumer welfare due to a decrease in import prices and intensive competition. According to a recent study by the Peterson Institute for International Economics, if TPP takes effect in 2017, the GDP of TPP member countries is likely to increase by 0.5%-8.1% in 2030, compared to the GDP forecast in an event of non-adoption of TPP.

(2) Dr. Iida, Univ. of Tokyo, Japan. TPP has a rule-making function, and these rules as provided in international relations as well as who wrote them are important issues. For the US, joining TPP is part of a larger strategy of “pivoting” to Asia or rebalancing to Asia. The US was preoccupied with the wars in Afghanistan and Iraq and was not paying enough attention to Asia. Therefore, TPP was part of the toolkit to achieve this new policy for the Obama Administration. For Japan, which has to rely on the US for security, TPP meant mending the fences with the US following a series of recent frictions including the planned relocation of one of the most important marine bases in Okinawa to outside Okinawa.

He added that TPP is seen to benefit Japan, projected at 2.6% of GDP (accordingly to the Cabinet Office), a significant number considering that its potential growth rate minus TPP membership is mere 0.5%.

(3) Dr. Sethaput, TFF, Thailand. A multilateral system with non-preferential treatment covering many countries like the WTO is better than mega-regional trade regimes like TPP and RCEP. Why?

(a) TPP is subject to the usual problems of trade diversion: increased trade among members, lesser trade with non-members.

(b) TPP is not just about trade, it also includes other issues like investor and intellectual property protection, labor and environmental standards, etc.

(c) The investor-state dispute settlement (ISDS) mechanism provides international arbitration that benefits US corporates. The US Trade Representative notes on its Web site that “the United States has never lost an ISDS case.”

(d) RCEP is a better alternative, has less non-trade baggage, uses the best elements of the multilateral system, like WTO dispute settlement, TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).

(e) Ultimate goal should be the Free Trade Area of the Asia-Pacific, which includes all the existing members of APEC including China and Russia. This can be achieved through either expanding the TPP or merging TPP and RCEP.

Personally, I believe that the best trade policy is unilateral trade liberalization. Be friends to all countries and economies who can bring in the best products and services at best qualities and at the best or most competitive prices into our shores and shops. This will bring down the cost for all local manufacturers in need of cheaper capital goods, cheaper raw materials, and intermediate products, which will result in cheaper production processes. Local consumers will also benefit for obvious reasons. And those countries will likely return the favor with zero or very low tariff for Philippine exports too.

Since this is far from happening, the second best policy is multilateral and global free trade. This is not happening too. So the third best policy is joining mega-RTAs like the TPP and RCEP. The worst policy of course is autarky or no trade, or even very restricted trade.

The Philippines and all ASEAN members are already RCEP members. The Philippines should proceed applying for TPP membership. The dreaded provision ISDS is actually important and useful. It simply protects foreign investors who come to other TPP member-countries based on TPP rules, when other member-countries will suddenly change the rules midway. The ISDS in effect will help prevent members from arbitrarily changing rules on trade, investments, IPR, competition and other policies.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET, President of Minimal Government Thinkers, which is a member of EFN Asia.minimalgovernment@gmail.com

I am reposting an interview by the Economic Freedom Network (EFN) Asia of Andrew Work (AW). Andrew is the Publisher and Editor-in-Chief of Harbour Times (HT), the flagship of New Work Media. Before creating the HT, he was the Exec. Director of The Canadian Chamber of Commerce in Hong Kong for a few years. And before that, he was a co-founder and founding Exec. Director of The Lion Rock Institute (LRI), Hong Kong’s first free market think tank, born in 2004.

Andrew holding a copy of the HT, thanks to Olaf K. for this photo. Andrew is a friend since 2004. Met him first time in Michigan for the Mackinac Leadership Conference, then at the Atlas Liberty Forum in Chicago, then in several meetings in Washington DC, then at the EFN Asia conference in Hong Kong, October 2004.

Here’s the interview. I omitted the first Q&A.
———–

EFN: World War II put an end to the opium trade. How did that affect Hong Kong?

AW: At that point Hong Kong had already established itself as an important Asian trade center and the people of Hong Kong, their jobs, incomes and prosperity very much depended on the flow of goods through the harbour. And this meant that Hong Kong’s DNA remained free of policies that, for example, aim to protect local industries from foreign competition through taxation. Hong Kong was always wide-open for trade, only few goods were subject to import duties. And in some cases abolishing such import duties has even proved beneficial.

EFN: For example?

AW: Well, a recent example would be the de facto elimination in 2008 of the import duty on wine. The duty was actually not abolished, but reduced from 60% to 0%. This has had a tremendous effect: Within only one year the total value of wine traded in Hong Kong doubled. Practically overnight the city became Asia’s trade and auction hub for fine wine. This has turned out to be immensely profitable and has led to the creation of new infrastructure – such as special warehouses – and jobs. In effect an entirely new industry sector has emerged within the blink of an eye.

EFN: In Europe we are witnessing a rather emotional debate about the Transatlantic Trade and Investment Partnership (TTIP). Here in Asia negotiations over the Trans-Pacific Partnership (TPP) were concluded last year. In how far are free trade agreements relevant to Hong Kong?

AW: FTAs mainly deal, and I am simplifying a bit here, with the mutual dismantling of tariff and non-tariff trade barriers. There’s not much to dismantle in Hong Kong in that regard. But Hong Kong has negotiated a couple of FTAs during the past few years, for example the ones with EFTA and Chile, and the Closer Economic Partnership Agreement (CEPA) with China. While, on the face of it, signing CEPA didn’t make that much difference at first, its later iterations tackled some issues of importance to Hong Kong. One example would be the mutual recognition of academic titles and professional qualifications.

The reduction of barriers within the framework of CEPA could be beneficial – both for foreign professionals who want to settle in Hong Kong and for Hong Kongers who wish to offer services in mainland China.

Many restrictions remain on offering services in Hong Kong. The Medical Council of Hong Kong makes it very hard for foreign physicians to settle in Hong Kong and offer medical services. The same applies to foreign lawyers. In my view these are unnecessary restrictions that reduce consumer options.

As far as TPP is concerned, I am convinced that Hong Kong will profit immensely, even though it is not a part of the treaty. Hong Kong very much depends on world trade. If trade is flourishing, Hong Kong prospers.

EFN: What are the long-term prospects of Hong Kong?

AW: That very much depends on how Hong Kong will elect its Chief Executive (CE). Hong Kong’s constitution, the Basic Law, is in many regards a fantastic legal document. But unfortunately it vests the Chief Executive with a lot of power. Let me give you an example: Suppose you want to file a complaint against the police. You would then turn to the Independent Police Complaints Council. Its members are appointed by the Chief Executive. But he [the CE] also appoints the police chief and has the final say on nominations to the High Court. Furthermore, the Chief Executive appoints the head of Hong Kong’s anti-corruption commission. This goes to show that too many institutions depend on the CE, a person who in theory has two masters: The people of Hong Kong and Beijing. But ultimately all important decisions are made by Beijing.

EFN: So, in a manner of speaking, very much depends on whether China understands Hong Kong or not?

AW: Precisely; unfortunately right now it seems that the leadership in Beijing shows little understanding of Hong Kong. Beijing doesn’t appreciate that the more they meddle in Hong Kong’s affairs, the more opposition they will face. Some people might simply decide to pack their stuff and leave. And these are dire prospects. Hong Kong became rich because the city was always allowed to do what lay in its interest. Hong Kong experienced rapid economic growth and lifted millions out of poverty long before China started to catch up. But this is a view that is not shared on the mainland. In China, the perception prevails that Hong Kong owes its wealth to China alone. I have the feeling that, if in doubt, Beijing has more interest in exerting control over Hong Kong than seeing the city prosper. The thinking seems to be: If China isn’t perceived as being in full control of Hong Kong, other regions on the mainland might become restive as well.